CDP. Module: Introduction. Page: F0. Introduction. Forests 2016 Information Request F0.1

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1 CDP Forests 2016 Information Request Crest Nicholson PLC Module: Introduction Page: F0. Introduction F0.1 Please give a general description and introduction to your organization Crest Nicholson is a leading residential developer, one of the top 10 listed house-builders, building homes across the southern half of the UK. We aim to improve the quality of life for individuals and communities by providing better homes, workplaces, retail and leisure spaces in which people aspire to live, work and play now and in the future. To deliver that ambition, we have been on a journey of innovation and transformation to position the Group for profitable growth. Whether carrying out systematic scientific research into low carbon housing solutions, partnering with our supply chain to drive out waste, or developing our product for a rapidly evolving market, the focus is on delivery, quality and choice for our customers and sustainable business value for our shareholders. Our operational focus remains concentrated in the southern half of England with an emphasis on creating well designed, high quality homes in sustainable communities. Our portfolio meets the needs of a wide range of purchasers, from first time buyers to investors, with a product range that includes houses, apartments and commercial units on mixed-use developments. F0.2 Please select the stages of the value chain which best represent your organization s area of operation pertaining to forest risk commodities. If your organization is diversified or vertically integrated, please select all that apply Retailing F0.3

2 Are there any parts of your direct operations that are excluded from this disclosure? No F0.3a Please identify the parts of your direct operations that are excluded from your disclosure Exclusion Description of exclusion Potential for deforestation risk Please explain F0.4 Are there any parts of your supply chain that are excluded from this disclosure? No F0.4a Please identify the parts of your supply chain that are excluded from your disclosure Exclusion Description of exclusion Potential for deforestation risk Please explain F0.5 Do you produce or use materials that contain any of the forest risk commodities? Please complete the table Produce/use forest risk Explanation if not disclosing but produce/use the Yes

3 Produce/use forest risk Explanation if not disclosing but produce/use the Palm Oil Cattle Products Soy Other No No No No F0.6 Please confirm which commodities you will be disclosing on F0.7 Please state the start and end date of the year for which you are reporting data Reporting year Sat 01 Nov Sat 31 Oct 2015 Further Information Module: Current State Page: F1. Context F1.1

4 How does your organization use your selected commodities? Please provide details on the form and source of the commodities you use or produce Activity Form of Source Country of origin % of procurement spend Comment Construction Sawn timber, veneer, chips Boards, plywood, engineered wood Contracted suppliers (manufacturers) Other: Subcontractors Austria Brazil Canada Chile China Finland France Germany Indonesia Italy Malaysia New Zealand Norway Poland Russian Federation Spain Sweden Switzerland United Kingdom United States of America Other: Portugal, Latvia, Croatia, Uruguay, Belgium, Ireland, Austria, Cameroon 1-5% As a housebuilder and residential developer, we use a number of timber products to construct our houses and apartments and the wider public open spaces. The exact % of timber present in any one house or apartment will vary significantly depending on its design and construction type. Buying manufactured product Paper Goods Not For Resale (GNFR) Contracted suppliers (manufacturers) United Kingdom <1% We also use Goods Not For Resales and Paper in the form of office paper and other stationary, sales brochures and literature, and office furniture. F1.2

5 Please indicate the percentage of your organization s revenue that was dependent on each of your selected forest risk commodities in the reporting year % of revenue dependent on in the reporting year Comment 1-5% The exact percentage of our organisation's revenue dependent on timber is 1.55% (taking the amount we spent on procuring timber-based products in the Financial Year divided by our turnover). F1.3 Has your organization experienced impacts related to forest risk commodities that have generated a substantive change in your business operations, revenue or expenditure in the past five years? No F1.3a Please identify the impacts related to forest risk commodities that have generated a substantive change in your business operations, revenue or expenditure in the past five years Impact driver Impact Description of impact Financial impact Response strategy Description of response strategy F1.4 Please describe why you do not know if your organization experienced any impacts related to forest risk commodities that have generated a substantive change in your business operations, revenue or expenditure in the past five years

6 Primary reason for being unaware of impacts Comment Further Information Module: Risk Assessment Page: F2. Risk assessment F2.1 Please select the option that best describes your procedures with regard to assessing deforestation risks and opportunities Deforestation risk assessment procedure Operational coverage Please explain Integrated into a comprehensive, companywide risk assessment process Direct operations Supply chain Our risk management framework manages and monitors risks through risk registers that are maintained at both divisional (covering division and asset level risks) and Group level (covering significant division-level and company-wide risks). Divisional teams undertake three assessments related directly to timber, the results of which are reviewed at a divisional and group-wide level by the Sustainability Director, Commercial Directors, and Procurement Director, who, together, agree any required mitigation strategies or wider business impacts, and then liaise with divisional teams to implement solutions. These assessments are described in 2.1a. If the risks identified are considered of very high-risk or to have a significant impact on business operations, these would be incorporated into the Group Risk Matrix, which is reviewed and monitored by the Audit Committee. This Committee is responsible for reviewing the effectiveness of the Group s internal controls and risk management systems including the Group s control framework; this is then reflected in the risk matrix. The Committee approves the internal audit programme and monitors the implementation of any recommendations made. F2.1a

7 Please provide further details on your risk assessment procedures with regard to deforestation risks and opportunities Frequency of monitoring To whom are results reported? Scale of risk assessment How far into the future are risks considered? Please explain Six-monthly or more frequently Board or individual/ sub-set of the Board or committee appointed by the Board Whole company Tier 1 supplier(s) Other: Tier 2 suppliers where the level of risk for the Tier 1 supplier is considered high 1-3 years Our timber risk framework includes three assessments. All three work to reduce the risk of Crest Nicholson procuring uncertified or unsustainable timber products and assess the risks posed by supply chain partners that procure for Crest Nicholson, but may not hold a Chain of Custody. The first assesses the potential level of risk to our direct operations from our tier 1 suppliers through quarterly internal audits of our commercial agreements. This internal audit seeks to ensure that our supply chain partners have met the requirements of our Sustainable Procurement Policy and procedures, and supplied all evidence required to satisfy their claims regarding certified timber. The second is an annual assessment that requires supply chain partners to disclose the entire volume of timber supplied to Crest Nicholson in the financial year and provide evidence of its provenance back to country of origin. The annual audit results are used to measures progress against our Sustainable Action Plan and the results are published on our corporate website. Both of these audits are conducted by designated auditors in each division and overseen by Group Sustainability. It is also the Sustainability team that will conduct the overall risk assessment of our timber supply chain through its review of the divisional audits. At a minimum, upon completing a quarterly audit, Group Sustainability will meet with the key senior divisional directors, namely the Commercial Directors and the Group Procurement Director, to make a final judgement on any required mitigation strategies or wider business impacts, and agree how solutions will be implemented. Where an audit has identified a high-risk issue relating to illegal timber or the potential that Crest Nicholson s purchasing decisions are unknowingly supporting deforestation, the matter will be discussed with the Board representative for Sustainability in the first instance, and if required the Company Secretary and Chief Financial Officer. The third assessment is an internal audit of all office paper procured by our regional offices, which is conducted by Group Sustainability on an annual basis. Spot checks of sales literature

8 Frequency of monitoring To whom are results reported? Scale of risk assessment How far into the future are risks considered? Please explain is also undertaken by Group Sustainability. These two measures ensure that divisional teams are complying with our Sustainable Paper Policy. F2.1b Please identify which of the following criteria are factored into your organization s deforestation risk assessments Criteria Timeframe Relevance Please explain Changes in availability and quality of forest risk commodities Impact of activity on the status of ecosystems and habitats Regulation Current Future Current Future Current Future Relevant, included Relevant, included Relevant, included According to WWF-UK, the world has lost more than half of its forest cover and each year an area the size of England is lost to deforestation. Given that between 9-15% of a typical Crest Nicholson home is made of timber-based products, and we look to acquire high-quality and easily available soft and some hardwood timber products, any potential global deforestation risk could have a material impact on the business. We assess this criterion primarily through discussions with supply chain partners at regular stages of our design and build processes. This information is important and integrated into decisions we make during our house design evolution, budget setting, and construction programmes. Our Sustainable Procurement Policy commits Crest Nicholson to specifying and purchasing products sourced from sustainably managed forests and credible certification schemes. Within the Policy we set a clear preference for FSC. The decision to set a preference for FSC-certified timber products is due partly to our recognition of the impact that forestry activities can have on ecosystems and habitats, and the fact that FSC certification includes standards around protecting ecosystems and biodiversity. Without healthy and diverse ecosystems and habitats, our timber supply chain would be at serious risk. Our Commercial teams understand the importance of purchasing, where possible, FSC certified timber and the potential impact from choosing to purchase timber products from unknown sources. As of June 2016, our supply chain must comply with the European Union Regulations, which ensures that only legal timber products enter the EU market. Crest Nicholson monitors the EUTR and ongoing developments/impacts following the UK's decision to exit the EU in order to be able to respond any changes that might affect our future supply chain. Further to this, Crest Nicholson relies on its Sustainable Procurement Policy and its requirement to only procured certified timber to mitigate any potential international or bilateral regulations.

9 Criteria Timeframe Relevance Please explain Tariffs or price increases Loss of markets Stakeholder conflicts concerning forest risk commodities Brand damage related to forest risk commodities Corruption Other Current Future Not applicable Not applicable Current Future Not applicable Not applicable Relevant, included Not relevant Not relevant Relevant, included Not relevant Not evaluated Given that our products are constructed using between 9-15% timber products, price increases on any timber product could have a negative impact on the overall cost of building a new house. Commercial teams regularly discuss prices with suppliers in order to have sight of issues well before our construction budgets are set. We rely on our suppliers to remain informed of potential price changes, both up and down, due to availability issues in the market or other deforestation-related impacts. We base procurement decisions, in part, on the balance between potential cost increases and the quality and sustainability credentials of the product. Deforestation and climate change are two well-understood and emotive sustainability subjects for the public. However, given Crest Nicholson s stance and transparency on procuring sustainable timber, we do not see the 'loss of markets' as a potential risk to our business. Instead, we assess the potential brand damage. See below for an explanation of how we mitigate that risk. Stakeholder conflicts regarding timber are not factored into Crest Nicholson's deforestation risk assessment. This is primarily due to the fact that our Sustainable Procurement Policy seeks to only purchase timber from sustainably managed forests through credible certification schemes, such as FSC. Deforestation and climate change are two well-understood and emotive sustainability subjects for the public. We recognise that customers buying a Crest Nicholson home do not wish to have any component part of that home to have been made from illegally logged timber. We have taken the decision to be as transparent as possible to mitigate any reputational risk. Crest Nicholson s stance on sustainable timber, including our Sustainable Procurement Policy, Action Plan, and annual % of procured certified timber products are all published on our corporate website. We publicly support the WWF-UK Forests campaign and feature on their website as a supporter. We also participate in various benchmarks, including the FTSE4Good Index and NextGeneration (a sustainability index of the top 25 housebuilders in the UK) as well as this Disclosure, which demonstrates our leadership in our industry in the UK. In 2015, we topped the NextGeneration benchmark as the most sustainable housebuilder in the UK; timber procurement is one of the areas assessed in this benchmark. This level of transparency and support for a key NGO fighting deforestation stand Crest Nicholson is a good position to defend itself against any potential brand damage relating to our procurement decisions. Crest Nicholson has a robust anti-bribery and corruption policy in place for its employees and supply chain partners. Furthermore, we only procure our timber-based products through UK-based companies who are subject to this policy and UK law regarding corruption. F2.1c

10 Please provide any additional information about your approach to assessing deforestation risks here F2.1d If you have conducted a partial risk assessment, please identify any exclusions in the following table Exclusion Please explain F2.2 Please explain why you do not have a process in place for assessing and managing deforestation risks, and whether you plan to introduce such a process in the future Primary reason for not having a process Do you plan to introduce a process? Timeframe Comment Further Information Module: Implications Page: F3. Risks F3.1 Have you identified any inherent risks related to producing, marketing or sourcing forest risk commodities that have the potential to generate a substantive change in your business operations, revenue or expenditure? Please select all that apply

11 Risk Operational risks driven by changes in physical parameters Reputational risks F3.1a For your selected forest risk commodities, please describe any inherent operational risks in your direct operations or supply chain driven by changes in physical parameters that have the potential to generate a substantive change in business operations, revenue or expenditure Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods Change in temperature or temperature extremes Global Changes in temperature could significantly impact some tree species ability to grow by altering or reducing their habitat or shortening their growing season. It may also lead to desertification. Some tree species would not survive. While our first tier timber suppliers are all UK-based, many of the timber Increased operational cost Reduction/ disruption in production capacity Reduction/ disruption of supply >6 years Supply chain More likely than not Mediumhigh Setting a requirement within our Sustainable Procurement Policy and procedures to only specify and procure timber products from sustainably managed forests and credible certification schemes. This commitment to responsibly source timber products

12 Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods Change in precipitation extremes and droughts Global products are procured from around the world, including Europe, North America, Asia, and Africa. The potential impact on our global supply chain presents a material risk to Crest Nicholson in procuring certain building materials made of timber. Changes in precipitation extremes and droughts could severely impact some trees ability to grow or result in a loss of habitat. It may also lead to desertification. Increased operational cost Reduction/ disruption in production capacity Reduction/ disruption of >6 years Supply chain More likely than not Medium helps Crest Nicholson to ensure it is not contributing to deforestation or supporting illegal logging. Setting a further requirement within our Policy for our design and technical teams to specify timber that is defined in terms of its technical, performance, and aesthetic requirements so that we are not overly reliant on any one species. Maintaining a broad supply chain in order to not overly rely on any one supplier s procurement chain. Setting a requirement within our Sustainable Procurement Policy and procedures to only specify and procure timber products from sustainably

13 Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods Forest fires Global Some tree species would not survive. While our first tier timber suppliers are all UK-based, many procure timber products from around the world, including Europe, North America, Asia, and Africa. The potential impact on our global supply chain presents a material risk to Crest Nicholson in procuring certain building materials made of timber. Impact on our supply of timber and could make supply Increased operational cost 3-6 years Supply chain More likely than not Medium managed forests and credible certification schemes. This commitment to responsibly source timber products helps Crest Nicholson to ensure it is not contributing to deforestation or support of illegal logging. Setting a further requirement within our Policy for our design and technical teams to specify timber that is defined in terms of its technical, performance, and aesthetic requirements so that we are not overly reliant on any one species. Maintaining a broad supply chain in order to not overly rely on any one supplier s procurement chain. With increasing global temperatures, the

14 Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods some species unavailable for a number of years or more costly to procure from elsewhere. Reduction/ disruption in production capacity Reduction/ disruption of supply risk of unintentional forest fires is increasing in some countries from which our supply chain procure timber, including the United States. Also, the increasing temperature may result in the rise of forest fires in countries previously considered more protected from such a risk, like northern Europe. To manage this unpredictable event, Crest Nicholson s primary management method is to maintain a broad supply chain in order to not overly rely on any one supplier s procurement chain. We also require our design and commercial teams to not overly specify any particular type and species of timber for use in

15 Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods Availability of certified sustainable material Global Crest Nicholson has a policy to procure only certified timber products, setting a preference for FSC. A lack of availability of FSC or PEFC certified materials could present a material risk to the business and require us to extend our procurement to less wellestablished and less robust certification programmes for our timber products. Increased operational cost Reduction/ disruption in production capacity Reduction/ disruption of supply Other: reputational impact with customers, investors and stakeholders of procuring uncertified or weaker certification products. >6 years Direct operations and supply chain Likely High constructing our houses. As part of our commitment to procuring sustainably managed and credibly certified timber products, we commit to working with and helping those companies within our supply chain that do not hold a Chain of Custody to improve their transparency and understanding of their own supply chain. For example, we provide guidance to these companies on what documentation is required to prove the purchase of certified products and support them in acquiring the correct information from their own Tier 1 and 2 suppliers. We also actively encourage our noncertified supply

16 Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods Loss of ecosystem services Global Loss of ecosystems services could impact the ability for some forests and tree species to thrive or even survive. This loss occurs around the world and therefore its potential impact on our global supply chain presents a material risk to Crest Nicholson in procuring certain building materials made of timber. Increased operational cost Reduction/ disruption in production capacity Reduction/ disruption of supply 3-6 years Supply chain Likely Mediumhigh chain partners to become certified in FSC where feasible and appropriate for their business. Setting a requirement within our Sustainable Procurement Policy and procedures to only specify and procure timber products from sustainably managed forests and credible certification schemes. This commitment to responsibly source timber products helps Crest Nicholson to ensure it is not contributing to deforestation or the loss of biodiversity and habitat. Setting a further requirement within our Policy for our design and technical teams to specify timber that is defined in terms

17 Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods of its technical, performance, and aesthetic requirements so that we are not overly reliant on any one species. Maintaining a broad supply chain in order to not overly rely on any one supplier s procurement chain. F3.1b For your selected forest risk commodities, please describe any inherent risks in your direct operations or supply chain driven by changes in regulation that have the potential to generate a substantive change in business operations, revenue or expenditure Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods F3.1c For your selected forest risk commodities, please describe any inherent reputational risks in your direct operations or supply chain that have the potential to generate a substantive change in business operations, revenue or expenditure

18 Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods Negative media coverage Region Crest Nicholson is a leader in the UK housing industry for sustainability. Industry, consumer, and partner trust (such as local planning authorities) is dependent on the company acting responsibly in terms of environmental and social issues, including the procurement of sustainably sourced timber products. Possible negative media coverage from being found to have procured illegal timber products could impact upon our long-standing reputation for sustainability and the trust built with stakeholders. Reduced stock price (market valuation) Other: Declining standing in industry benchmarks; reduction in planning consents and land acquisitions 3-6 years Direct operations Unlikely Low Crest Nicholson s primary method to manage this risk is to have a robust and transparent procedure in place to support the commitments we make in our Sustainable Procurement policies. Crest Nicholson is also committed to be transparent in its performance against our timber policy and associated action plan. Results from our annual timber audit is published on our corporate website and reported publicly through our Integrated Report Summary document. We openly discuss challenges and opportunities we face to meet our stretching targets for sourcing sustainable timber

19 Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods Consumer market campaigns Country Crest Nicholson is a leader in the UK housing industry for sustainability. Industry, consumer, and partner trust (such as local planning authorities) is dependent on the company acting responsibly in terms of environmental and social issues, including the procurement of sustainably sourced timber products. Potential consumer market campaigns against our organisation or industry could impact upon our Reduced demand for goods/service Reduced stock price (market valuation) 3-6 years Direct operations Very unlikely Low in our operations. Crest Nicholson also participates in industry-specific and other benchmarks, such as FTSE4Good as a further measure of our transparency and to drive our own improved performance. Crest Nicholson s primary method to manage this risk is to have a robust and transparent procedure in place to support the commitments we make in our Sustainable Procurement policies. Crest Nicholson is also committed to be transparent in its performance against our timber policy and associated action plan. Results from our annual timber audit is published on our corporate

20 Risk driver Geographical scale Description of risk Potential impact Timeframe Direct operations/ supply chain Likelihood Magnitude of impact Management methods long-standing reputation for sustainability and the trust built with stakeholders. website and reported publicly through our Integrated Report Summary document. We openly discuss challenges and opportunities we face to meet our stretching targets for sourcing sustainable timber in our operations. Crest Nicholson also participates in industry-specific and other benchmarks, such as FTSE4Good as a further measure of our transparency and to drive our own improved performance. F3.2 If you indicated in question F3.1 that you do not consider your organization to be exposed to operational risks related to producing, marketing or sourcing any of your selected commodities, please explain why in the table below

21 Primary reason for not identifying risks Please explain F3.3 If you indicated in question F3.1 that you do not consider your organization to be exposed to risks related to producing, marketing or sourcing any of your selected commodities driven by changes in regulation, please explain why in the table below Primary reason for not identifying risks Please explain Risks exist, but no substantive impact anticipated The European market is covered by the EU Trade Regulations, which require that timber-based products imported into our market be legally sourced. Most of our Tier 1 supply chain is located within the UK and Europe and thus are covered by these regulations. Despite the recent decision by the UK to exit the EU, there is no indication that the UK Government will move away from the requirements set in the EUTR. We regularly discuss issues, such as regulatory changes, with our supply chain. Over the coming months, should there be a change in our perception of the UK Government's stance on the EUTR and UK legislation, we will review whether 'regulation' should be an area included within our risk assessment. F3.4 If you indicated in question F3.1 that you do not consider your organization to be exposed to reputational risks related to producing, marketing or sourcing any of your selected commodities, please explain why in the table below Primary reason for not identifying risks Please explain Further Information

22 Page: F4. Opportunities F4.1 Have you identified any opportunities related to producing, marketing or sourcing these commodities sustainably that have the potential to benefit your organization? Opportunities? Yes F4.1a Please describe the opportunities related to producing, marketing or sourcing these commodities sustainably, and your organization s strategy to capitalize on them Opportunity Scale of opportunity Strategy to realize opportunity Timeframe Comment Increased brand value Company-wide opportunities in three areas: 1) In our dealings with local stakeholders where we are proposing to build a new development. 2) Among our industry through participation in key benchmarks. 3) With potential customers Our strategy to capitalise on the benefits that sourcing sustainable timber materials in the construction of our homes and for our offices use in order to enhance our brand value centres on two key areas: 1) Maintaining a robust Sustainable Procurement Last 3-6 years 1-3 years Key stakeholders, such as environmentally conscious Local Planning Authorities and residents, who expect or require Crest Nicholson to use sustainably sourced and credibly certified timber products. Key industry and other benchmarks, such as FTSE4Good Index and NextGeneration, which evaluate Crest Nicholson s sustainability performance in part by our sustainable procurement procedures and timber procurement. Potential new customers that are environmentally conscious purchasers.

23 Opportunity Scale of opportunity Strategy to realize opportunity Timeframe Comment looking to buy a new home. Policy and procedures within the organisation and with our supply chain partners AND meeting the stretching targets within our Sustainable Action Plan for annual increasing % of procured FSCcertified timber products. 2) Transparent and active communication about our efforts with stakeholders, including: Publishing engaging and informative information about our sustainable timber procurement performance and efforts to support our supply chain in acquiring certified timber materials that can be used by our teams in their work with

24 Opportunity Scale of opportunity Strategy to realize opportunity Timeframe Comment local stakeholders or used as evidence for different benchmarks. Publishing our annual performance on our corporate website and Annual Integrated Report Summary. Highlighting our use of sustainably sourced timber in building Crest Nicholson homes on the landing page for our current developments. Participating in industry benchmarks (such as NextGeneration) and external benchmarks (such as FTSE4Good Index). Supporting the WWF-UK Forests campaign for increasing the type of timber products covered by the European Union

25 Opportunity Scale of opportunity Strategy to realize opportunity Timeframe Comment Increased shareholder value Opportunities to increase ethical investors interest in investing in Crest Nicholson. Opportunities to increase overall confidence by current and future investors in Crest Nicholson s ability to maintain a secure supply of a key material and mitigate climate change and deforestation risk. Regulations. This strategy is underway within the organisation. Our strategy to increase shareholder value centres on: 1) Maintaining a robust Sustainable Procurement Policy and procedures within the organisation and with our supply chain partners AND meeting the stretching targets within our Sustainable Action Plan for annual increasing % of procured FSCcertified timber products. 2) Making our efforts and performance transparent and accessible to the investor community by publishing our Last 1-3 years 1-3 years 3-6 years >6 years Two key areas of consideration for our shareholders relate to deforestation. The first is the security of our supply chain for timber. As a developer that, not only has a requirement for specifying and procuring sustainably sourced timber products, but sets a preference for FSC, Crest Nicholson is able to demonstrate to shareholders that we are aware of the risk of deforestation and have put in place mechanisms to support our long-term resilience and mitigation to any operational and regulatory risks related to one of our key commodities for housebuilding. The second is the risk of climate change to our business and operations. Our Sustainable Procurement Policy, procedures, and Action Plan for improvement demonstrate how we ensure that our procurement decisions do not increase deforestation and the resulting climate change. Furthermore, our position and policy on sustainable timber supports our position as a sustainability leader in our industry and may present opportunities for future investment by ethical investors. Shareholders and investors are increasingly looking for companies that can demonstrate how they are integrating long-term environmental and social considerations and impacts in their decisionmaking, and that they are creating value for society beyond increasing financial returns. This may open up the opportunity in the future to enter the increasing ethical investor market. Crest Nicholson already features as one of the top ten holdings for the Alliance Trust, an ethical fund:

26 Opportunity Scale of opportunity Strategy to realize opportunity Timeframe Comment Increased security of supply All of Crest Nicholson s homes include some products that are derived from timber. We also design, plan and build developments that can take anywhere from 1 to 15+ years to complete, depending on the number of annual performance on our corporate website and Annual Integrated Report Summary. 3) Topping key industry benchmarks, such as NextGeneration and FTSE4Good Index, which provide external assurance to investors of our performance among our industry colleagues. This strategy is underway within the organisation. Our strategy focusses in two areas: Maintaining a robust Sustainable Procurement Policy and procedures within the organisation and with our supply chain partners. In particular, setting a preference for Last 3-6 years 1-3 years 3-6 years Crest Nicholson s business strategy, as outlined in our 2015 Integrated Report, has two areas that relate to ensuring the security of our supply of timber. The first is our managed strategy of growth, which aims to build 4000 homes a year by In 2015, we delivered 2725 units. In order to achieve this strategic business aim, Crest Nicholson will need to build 47% more homes in 2019 than it has in This aim will require Crest Nicholson to ensure it maintains a secure and reliable supply of timber materials. The second is our aim to build and maintain long-term relationships with our supply chain and other partners. We have a programme of work in place to work with our supply chain to innovate and improve in all areas of our operations, including sustainable sourcing. Maintaining a robust Sustainable Procurement Policy and procedures within Crest Nicholson and with our supply chain partners is one example of this. It includes regular auditing of our supply chain to ensure our timber is sourced from sustainable and secure sources; working with

27 Opportunity Scale of opportunity Strategy to realize opportunity Timeframe Comment Increased transparency homes. Crest Nicholson s commercial and production teams must plan effectively for tight build programmes over long periods of time. This requires a secure supply of our key materials, including timber. Using sustainably sourced timber products are a key opportunity for Crest Nicholson to create an increased secure supply of timber for our delivery needs. Opportunities exist in three key areas: 1) Company-wide opportunities to maintain our reputation as a leading sustainable FSC-certified timber products. Maintaining collaborative and mutually beneficial relationships with suppliers and subcontractors. This strategy is underway within the organisation. We work to increase transparency in our company, with our supply chain, and within the industry by: Maintaining a robust Sustainable Last 3-6 years Within the last year 1-3 years 3-6 years supply chain partners that do not hold a Chain of Custody in FSC or PEFC to improve their transparency and audit trail or, in some case, encourage them to acquire certification. We are also developing mutually beneficial agreements with our supply chain partners to ensure an enhanced level of business certainty for both us and them, while reducing the supply risks in key materials, like timber. 80% of our suppliers of housebuilding materials are already covered by these agreements. Crest Nicholson is one of the few UK housebuilders to publicly disclose the volume and certification split between timber that we purchase directly through our suppliers and that which comes indirectly on our sites through our subcontractors. These supply chains present different challenges in procuring sustainable timber. Presenting our data in this way was something we introduced in our 2013 Sustainability Report, following years of only publishing data on our direct supply of timber through suppliers. It is one example of Crest Nicholson s increasing level of transparency, and supports our belief that such transparency of our performance helps to

28 Opportunity Scale of opportunity Strategy to realize opportunity Timeframe Comment housebuilder in the UK, and our position in benchmarks. 2) Opportunities to increase the level of transparency and compliance among our direct supply chain, and in some cases, our Tier 2 suppliers. 3) Opportunities to increase the level of transparency among by industry colleagues by leading by example. Procurement Policy and procedures within the organisation and with our supply chain partners. Publishing engaging and informative information about our sustainable timber procurement performance and efforts to support our supply chain in acquiring certified timber materials on our corporate website and within our Annual Integrated Report Summary. Participating in industry benchmarks (such as NextGeneration) and external benchmarks (such as FTSE4Good Index). This strategy is underway within the organisation. foster trust among our stakeholders, support other strategic objectives (such as increased shareholder and brand value), and drive industry colleagues to follow suit. We work with supply chain partners that do not hold a Chain of Custody in FSC or PEFC to improve their transparency and audit trail or, in some case, encourage them to acquire certification.

29 Opportunity Scale of opportunity Strategy to realize opportunity Timeframe Comment Driving demand for sustainable materials First, Crest Nicholson has the opportunity to drive demand for sustainably sourced materials within the organisation itself by increasing people s awareness of the importance and reason for our commitment to only using sustainably sourced timber products in building our homes, in our printed materials, and office supplies. By increasing employees awareness about the impact of their commercial decisions, Crest Nicholson then has an opportunity to drive demand for sustainably sourced Our strategy includes several key initiatives, all of which are implemented within the organisation: Maintaining a robust Sustainable Procurement Policy and procedures within the organisation and with our supply chain partners. Maintaining an Action Plan that drives our commercial teams to procure everincreasing volumes of FSC-certified timber products. Publishing engaging and informative information about our sustainable timber procurement performance and efforts to support our supply chain in acquiring certified timber materials on our internal Last 1-3 years 1-3 years 3-6 years In our Financial Year 2015, Crest Nicholson purchased nearly 32,000 m3 of timber through its suppliers and subcontractors. In every tender process we undergo with our timber supply chain partners we set clear expectations for acquiring sustainable sourced and credibly certified timber products, and make explicit our preference for FSC-certified timber materials. Our strategy of managed growth over the next 3 years will see Crest Nicholson aim to build 4000 homes by Within each of those 4000 homes, approximately 9% to 15% of its building materials will be made from (or contain) timber. Maintaining our robust Sustainable Procurement Policy and procedures as well as ever-increasing targets for using FSCcertified timber will help to drive an increased demand for sustainable materials by Crest Nicholson on its supply chain.

30 Opportunity Scale of opportunity Strategy to realize opportunity Timeframe Comment materials in two other areas: 1) With our supply chain partners 2) Within the industry by demonstrating the commercial, business, and stakeholder advantages we gain. The competitor nature of our industry may lead others to follow suit. website. Providing training to key staff, who are responsible for making commercial and procurement decisions about sustainable timber, deforestation, our Policy and procedures. A Business Strategy of growth for delivering units of completed homes. F4.2 Please explain why you do not consider there to be any opportunities for your organization associated with producing, marketing or sourcing these commodities sustainably Primary reason for not identifying opportunities Please explain F4.3

31 Please explain why you don t know if there are any opportunities for your organization associated with producing, marketing or sourcing these commodities sustainably Primary reason for not knowing if there are opportunities Please explain Further Information Module: Measure & Monitor Page: F5. Measurement F5.1 Do you own or manage land used for the production of any of your selected commodities? Please complete the table Own and/or manage land? Size (Hectares) Type of control System in place to monitor deforestation? Recent infractions? Please explain Don t own or manage land Not applicable Not applicable Not applicable Not applicable As a housebuilder, we procure all our timberbased products through our supply chain. F5.2 Does your organization collect production and/or consumption data for your selected commodities? Production and/or consumption data available? Consumption data available, disclosing

32 F5.2a Please disclose your production and/or consumption data using the table below Production/ consumption data Volume Metric Full/Partial data? If partial data, please explain Consumption data Cubic meters Partial production/consumption The annual audit of sustainable timber procurement that Crest Nicholson conducts every year includes all of the suppliers and subcontractors that procured timber on our behalf in the year. However, certain elements of this audit require our supply chain partners to voluntarily participate and disclose key pieces of information, including the volume of timber in the products they procured on our behalf. While our quarterly audits ensure that all of our supply chain partners are procuring sustainably sourced and credibly certified timber on our behalf, we are not able to confirm the volume of timber purchased without the voluntary participation of our supply chain partners in the annual audit. In our last annual audit, 0.45% of the timber procured by Crest Nicholson was not fully disclosed by our supply chain. F5.3 Please explain why your organization is not disclosing production and/or consumption data for your selected commodities Primary reason for not disclosing production/consumption data Please explain F5.4 Please explain why production and/or consumption data is not available for your selected commodities

33 Primary reason for not having production/consumption data Please explain Further Information Page: F6. Traceability F6.1 Do you have a system in place to track and monitor the origin of raw materials for your selected commodities? System to track and monitor origin of raw materials? F6.1a Please describe the system you have in place to track and monitor the origin of raw materials for your selected commodities System System coverage If partial, % of total production/consumption tracked/monitored Please explain F6.2 Please explain why you do not have a system in place to track and monitor the origin of raw materials for your selected commodities Primary reason for not having a system in place Please explain

34 F6.3 Please provide details on the level of traceability your organization has for your selected commodities % of total production/ consumption traceable Traceability system Point to which traceable Exclusions Exclusion description, if applicable Comment 91-99% Use of Chain of Custody schemes (FSC & PEFC) along with supply chain audits. Country Other: Small volume of timber not audited (see F5.2a) Only 0.45% of the amount of timber procured by Crest Nicholson was not audited. Full Chain of Custody on 83% of the company s timber products, certified by FSC or PEFC. A further 17% has been assessed to come from a known legal source or as coming from sources that have met the EU Regulations. Crest Nicholson s traceability audit includes four classifications for the timber products. 1. Fully certified Chain of Custody to FSC 2. Fully certified Chain of Custody to PEFC (or FSC controlled wood) 3. Source Assessed to be Legal 4. Unknown source of origin. As an organisation, Crest Nicholson actively seeks to work with small local organisations as well as larger national organisations. In 2015, 34% of our supply chain partners were from areas within 20 miles of our construction sites. This commitment to working with local companies, where feasible, is a key mechanism for Crest Nicholson to support social and economic sustainability. However, this commitment also means that we sometimes choose to work with local supply chains that do not hold a Chain of Custody for FSC or PEFC. Despite working with some non-certified organisations that procure timber on our behalf, we still require them to procure fully certified timber (to either FSC or PEFC) for use on our sites. Our third classification Source Assessed to be Legal recognises those organisations who, without a Chain of Custody

35 % of total production/ consumption traceable Traceability system Point to which traceable Exclusions Exclusion description, if applicable Comment themselves, have broken the certification chain, but can prove that the timber comes from a legal source. Goods Not For Resale, such as office paper and sales literature, are not included in our annual audit. However, our Sustainable Paper Policy was reviewed and updated in May 2015 and sent to all affected suppliers. We worked with our stationary supplier to ensure that all office stationary was compliant and starting in November 2015 we requested and continue to receive information from this supplier on the certification of office paper on a monthly basis. We also conduct regular spot checks of our sales literature and brochures to ensure compliance. F6.3a Please describe your organization s approach to establishing traceability Crest Nicholson s Sustainable Procurement Policy states that we commit to specifying and purchasing products sourced from sustainably managed forests and credible certification schemes. On an annual basis, Crest Nicholson undertakes an assessment with its supply chain. Suppliers and subcontractors complete a detailed Questionnaire, which includes questions about the timber product s country of origin, timber species, and certification scheme; as well as questions about the company s own environmental and supply chain management systems. This Questionnaire was designed in collaboration with WWF-UK to ensure its robustness. Where a supply chain partner is certified in either FSC or PEFC, we further require evidence of certification through the submission and review of certificates and invoicing. Where a supply chain partner does not have its own Chain of Custody, we require evidence of certification (including certificates and invoices) from their own supplier (our Tier 2) or in some cases their Tier 2 supplier (our Tier 3) to verify our Tier 1 supplier s claim of certification. All Chain of Custody information is also verified online using and databases. Further Information

36 Module: Response Page: F7. Governance and strategy F7.1 Please indicate where the highest level of direct responsibility for deforestation risk lies within your organization and detail the frequency and nature of engagement on the issue Highest level of responsibility Name/position of individual or name of committee Frequency of briefing Nature of engagement Board or individual/sub-set of the Board or committee appointed by the Board Overall responsibility for all issues relating to sustainability, including sustainable timber procurement, fall within the purview of the Board representative for Sustainability, Strategic Projects and Regeneration Chairman. On a dayto-day basis, overall responsibility for sustainable timber procurement is shared between the Group Sustainability Director, the divisional Commercial Directors, and the Group Procurement Director. Quarterly The Group Sustainability Director meets every six weeks with the Board representative for Sustainability. Discussion regarding sustainable timber occurs when the results of the internal quarterly audit and full traceability annual audit for sustainable timber are concluded and risks or opportunities have been identified that require Board-level involvement. The Group Sustainability Director attends a quarterly meeting with all Commercial Directors and the Group Procurement Director. At this quarterly meeting, the company s performance against its Sustainable Procurement Policy and associated Action Plan targets is discussed, as well as results from the quarterly and annual audits. F7.2 Have you evaluated how the availability or quality of forest risk commodities could affect your organization s growth strategy? Not evaluated F7.2a